Managing Cash Controls: Principles and Procedures

1. INTERNAL CONTROLAND CASH CHAPTER 8

2. Cash Controls • Cashconsists of coins, currency, checks, money orders, and money on hand or on deposit in a bank. • Cash receipts come from: • cash sales • collections on account from customers • receipt of interest, rent, and dividends • investments by owners • bank loans • proceeds from the sale of noncurrent assets LO 3 Explain the applications of internal control principles to cash receipts.

3. Use of a Bank • Contributes to good internal control over cash. • Minimizes the amount of currency on hand. • Creates a double record of bank transactions. • Bank reconciliation. LO 6 Indicate the control features of a bank account.

4. Use of a Bank Writing Checks Written order signed by depositor directing bank to pay a specified sum of money to a designated recipient. Illustration 8-11 Maker Payee Payer LO 6 Indicate the control features of a bank account.

5. Use of a Bank • Bank Statements • Debit Memorandum • Bank service charge • NSF (not sufficient funds –bounced check) Illustration 8-12 • Credit Memorandum • Collect notes receivable. • Interest earned. LO 6 Indicate the control features of a bank account.

6. Bank Statement Balance Deduct: Outstanding checks. Add: Deposits in transit. Add or Deduct: Bank errors. Book Balance Deduct: Nonsufficient funds check (NSF). Deduct: Bank service charge. Add: Interest earned on checking account. Add: Collections made by the bank. Add or Deduct: Book errors. Reconciling Items

7. Use of a Bank Reconciliation Procedures Illustration 8-13 + Deposit in Transit - Outstanding Checks +- Bank Errors + Notes collected by bank - NSF (bounced) checks - Check printing or other service charges +- Book Errors CORRECT BALANCE CORRECT BALANCE LO 7 Prepare a bank reconciliation.

8. Use of a Bank • E8-11The following information pertains to Family Video Company. • Cash balance per bank, July 31, $7,263. • Cash balance per books, July 31, $7,284. • July bank service charge not recorded by the depositor $28. • Deposits in transit, July 31, $1,500. • Bank collected $900 note for Family in July, plus interest $36, less fee $20.The collection has not been recorded by Family, and no interest has been accrued. • Outstanding checks, July 31, $591. • Instructions • Prepare a bank reconciliation at July 31. • Journalize the adjusting entries at July 31 on the books of Family Video Company. LO 7 Prepare a bank reconciliation.

9. Use of a Bank E8-11 a) Prepare a bank reconciliation at July 31. Cash balance per bank statement $7,263 Add: Deposit in transit 1,500 Less: Outstanding checks (591) Adjusted cash balance per bank$8,172 Cash balance per books $7,284 Add: Collection of notes receivable 900 Collection of interest 36 Less: Bank service charge (28) Note collection fee (20) Adjusted cash balance per books$8,172 LO 7 Prepare a bank reconciliation.

10. Use of a Bank E8-11 b) Journalize the adjusting entries at July 31 on the books of Family Video Company. Dr. Cr. July 31 Cash 888 Bank charge expense 28 Miscellaneous expense 20 Notes receivable 900 Interest revenue 36 Note: Adjusting journal entry includes only the adjustments to the cash balance per books. LO 7 Prepare a bank reconciliation.